Keppel Corporation - CGS-CIMB Research 2020-10-09: Contract Wins Exceed Forecasts

KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Contract Wins Exceed Forecasts

Keppel O&M has won a c.S$600m engineering, procurement and construction (EPC) contract for a vessel in the renewable energy industry. This brings YTD orders to S$907m, ahead of our FY20F S$500m forecast. Order book at end-2Q20 was S$3.5bn.
Keppel Corp (SGX:BN4) is still trading a trough of c.0.7x CY20F, implying an unwarranted zero value for its Keppel O&M business. Reiterate ADD.

Keppel Offshore & Marine Ltd (Keppel O&M) clinched a contract worth c.S$600m from an energy company for the EPC of a vessel for the offshore renewable energy industry.
We had conservatively factored in S$500m/S$1bn of order wins for FY20/21F, below FY19 and FY18 average order wins of c.S$1.9bn; hence, we are positive that YTD orders of S$907m are ahead of our forecast.
We maintain our assumptions pending further discussion with the management.

In its Vision 2030, Keppel Corp mentioned that it is restructuring to focus as a developer of renewable energy (RE) solutions, and this contract proves it is seeing traction in that endeavour.
Its current projects include building converter stations and substations to support the offshore wind energy industry in the German sector of the North Sea and in Taiwan. It has also delivered previously and has a stake in Blue Tern, one of the world’s largest and most advanced multipurpose offshore wind turbine installers for the UK North Sea.

See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
The current valuation implies negative equity for Keppel Corp's O&M business, which we think is unwarranted as the O&M order book of more than S$4bn is in progress and should be able to guide the yard into profitability in FY21F.
With clear communication of what is in store ahead, we expect Keppel Corp to trade up to its long-term mean of 12.8x 12M forward P/E or 1.9x P/BV. See also recent report:
- Keppel Corporation - CGS-CIMB Research 2020-09-30: Rewarding Focus; Expect To See Accelerated Efforts In Selling Assets;
- Keppel Corporation - CGS-CIMB Research 2020-09-22: Trough Valuation Unwarranted.
Downside risks include a prolonged recovery in a post-COVID-19 normal.
A favourable outcome from the O&M strategic review and stronger gains from asset recycling are potential re-rating catalysts.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-09

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